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Picton Mahoney
Asset Management
Why consider Picton Mahoney?
1. Our firm is in the “sweet spot” for new investors:
•
•
•
Our investment team is deep and growing.
We have critical mass in assets and have been re-investing profits
to strengthen all aspects of our business
We have controlled our growth in assets and our portfolios remain
very nimble.
2. Our proprietary investment process is disciplined and
repeatable which increases the likelihood of continued
success in the future
3. Our risk control techniques allow risk levels to be targeted to
meet your requirements
4. We have a close knit investment team and our strong
organizational structure incorporates significant performance
incentives for our portfolio managers.
Current market outlook
The global economy and global markets continue the painful process of
working through past excesses
The recent stock market rally was driven entirely by multiple expansion
and now shorter-term risks are building:
–
–
–
–
–
Economic data is softening and profit margins may come under pressure.
Sentiment is more bullish and needs to correct
U.S. is approaching a “fiscal cliff” at year-end
European sovereign risks are starting to percolate again
Chinese economy continues to decelerate
Possible corrective phase should be limited by the following:
–
–
–
U.S. recovery is on firmer footing than it has been in some time
Monetary policy is getting even more accommodative around the world
Stock market valuations are attractive, especially relative to the alternatives
Our longer-term trading range thesis for equities remains intact:
–
–
–
Watch for signs of credible plans emerging to solve long-term structural deficit and
debt issues (otherwise capital markets will force these upon us)
The implementation of these plans should lead to a period of below trend economic
and earnings growth
Portfolio construction and rebalancing are important tools for investors
when markets struggle
The near term risks to the economy
and risk assets have increased
Citigroup Economic Surprise Index
100
50
0
2012
2011
2010
Source: Citigroup
2009
-150
2008
-100
2007
2006
-50
Global risk appetite has increased
significantly and needs to correct
Source: Credit Suisse
Housing impact has mostly been reflected in
slow U.S. economic growth – pent-up
demand is being created
New and Existing Home Sales
7500
7000
1250
6500
1050
6000
850
5500
5000
650
Existing Home Sales (Scale Left)
4500
450
New Home Sales (Scale Right)
4000
3500
250
2000
2001
Source: Ned Davis Research
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Not a lot of excesses in
the auto sector either
Dealer inventory, days supply
– Japan – U.S. Detroit
Source: Autodata
Corporations are generating tremendous
amounts of cash and may need to boost capex
Source: Ned Davis Research
Faster growing emerging markets will
contribute more to global GDP than in the past
(even as they slow)
0.35
Share Of Global GDP
United States
0.3
Euro area
Developing Asia
0.25
0.2
0.15
0.1
0.05
0
Source: NBF Economy & Strategy (data via IMF)
Stabilizing credit spreads will
be a key to market stability
Bulge bracket banks have done well but contagion
must be monitored
1800
Credit Spreads: Banks vs. Stressed Euro Sovereigns
1600
Global Bulge Banks
1400
Eurozone Banks Average
Stressed Euro Sovereigns
1200
1000
800
600
400
Source: Creditsights, Bloomberg
Mar-12
Jan-12
Nov-11
Sep-11
Jul-11
May-11
Mar-11
Jan-11
Nov-10
Sep-10
Jul-10
May-10
Mar-10
Jan-10
Nov-09
Sep-09
Jul-09
May-09
Mar-09
0
Jan-09
200
Stocks remain attractive on a free cash flow
yield basis relative to corporate bond yields
Equity Free Cash Flow Yields1
1953 Through March 2012
%
10.0
9.0
8.0
7.0
6.0
5.0
Average
4.0
3.0
2.0
1.0
0.0
53
56
59
62
65
68
71
74
77
80
83
Recessions
Source: Corporate Reports, Empirical Research Partners Analysis.
1Large-capitalization stocks excludes financial and utilities; capitalization-weighted data.
Source: Corporate Reports, Empirical Research Partners Analysis
1Large capitalization stocks excludes financial and utilities, capitali
86
89
92
95
98
01
04
07
10
Long term headwinds:
deleveraging process
Total U.S. credit market deleveraging is just starting,
many more years to come
Quarterly Data 12/31/1922 - 12/31/2011 (Log Scale)
Total Credit Market Debt as a % of GDP
385
380
375
370
365
360
355
350
345
340
335
330
325
320
315
310
305
300
295
290
285
280
275
270
265
260
255
250
245
240
235
230
225
220
215
210
205
200
195
190
185
180
175
170
165
160
155
150
145
140
135
130
(E5 01 A )
385.73
12/31/2011
12/31/2011
Debt = $54.134 Trillion
GDP = $15.321 Trillion
A nnual interpolated GDP (including estimates prior to 1929) used prior to 1946.
Domestic Nonfinancial Debt used prior to 1946. A s of December, 1946
Domestic Nonfinancial Debt represented 99.4% of Total Credit Market Debt.
Source: Department of Commerce
1925
1930
Source: Ned Davis Research
1935
= 353.3%
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
385
380
375
370
365
360
355
350
345
340
335
330
325
320
315
310
305
300
295
290
285
280
275
270
265
260
255
250
245
240
235
230
225
220
215
210
205
200
195
190
185
180
175
170
165
160
155
150
145
140
135
130
2010

Copyright 2012 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
See NDR Disclaimer at
www.ndr.com/copyright.html
. For data vendor disclaimers refer to
www.ndr.com/vendorinfo/
.
Long-term headwinds: current trends
in government debt are unsustainable
Source: IMF World Economic Outlook Jul 2010 Update, and IMF staff calculations and estimates.
Note: Weighted average by PPP-GDP. The debt scenario assumes that the cyclically adjusted primary balance, corrected for fiscal stimulus
measures, remains constant at the 2010 level (in percent of GDP). Nominal GDP is assumed to grow by 3 percent per year. The interest rate-growth
differential (r-g) is assumed to equal zero until 2014 and 1 percentage point afterwards. Moreover, the scenario accounts for the estimated increase
in ageing-related spending.
Outlook summary
Support points:
1. Preconditions for a recession aren’t present
2. Stimulative monetary policy in the developed world
3. Emerging market growth should be supportive as tightening
process ends
4. Equity valuations very attractive relative to treasuries
Resistance points:
1.
2.
3.
4.
5.
Sentiment is bullish and needs to correct
Earnings growth may weaken
Sovereign debt concerns: EU flare-ups, country downgrades
Middle East tensions
Governments still need to articulate clear plan to get out from
under debt loads
Are your portfolios ready?
DJIA performance 1966-1982
DJIA performance over 1966-1982
1100
1051.78
1047.48
1000
985.34
+32.3%
985.08
+58.2%
+74.7%
1009.31
1020.34
+20.6%
+34.1%
+34.3%
907.74
900
800
784.34
-24.5% 744.31
-25.5%
-44.9%
-32.8%
700
662.16
600
577.6
500
Source: Bloomberg
752.69 -19.4%
759.98
-23.1%
Source: Bloomberg
1998-Present
1998-Present
1/3/1982
1/3/1981
1/3/1980
1/3/1979
1/3/1978
1/3/1977
1/3/1976
1/3/1975
1/3/1974
1/3/1973
1/3/1972
1/3/1971
1/3/1970
1/3/1969
1/3/1968
1/3/1967
1/3/1966
1966-1982
900
11000
800
10000
9000
700
8000
600
7000
6000
500
5000
1998- Present
1000
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
Are your portfolios ready?
DIJA 1998-Present
DIJA over 1998-Present
1100
14000
13000
12000
Traditional portfolio construction
Traditional asset allocation
Portfolio weight
Expected return
5% cash
0%
35% bonds
Negative return after market, taxes
& inflation
60% equities
Trading range
High yielding stocks are now valued at
a near record premium to the market
1Capitalization-weighted
data.
Source: National Bureau of Economic Research, Corporate Reports, Emprical Research Partners Analysis.
Traditional portfolio construction
is becoming more difficult
If Gold is in a “Bubble” phase, it may not be a
great portfolio diversification tool either
Average of Six Bubbles Vs. Gold Today (Assuming Peak on Sept 11, 2011)
7.5
6.5
GOLD SPOT $/OZ
Median
Mean
5.5
4.5
The Six Bubbles:
1. Gold Bullion (1/27/1972 – 1/27/1982)
2. Reuters CRB Index (7/8/2000 – 7/8/2010)
3. NASDAQ (3/18/1992 – 3/18/2002)
4. MSCI China (11/5/1999 – 11/5/2009)
5. Dow Jones Industrial Average (9/9/1921 – 9/9/1931)
6. Nikkei 225 (1/9/1982 – 1/9/1992)
3.5
2.5
1.5
0.5
-8
Source: Bloomberg
-7
-6
-5
-4
-3
Years From Peak
-2
-1
0
1
2
Strategies for investment success
• Make sure portfolio’s are properly diversified
• Sectors
• Styles
• Geographies
• Expect new themes to emerge from the rubble
• Quality growth companies could see multiple
expansion in a slow growth environment
• Rebalance
Investment philosophy
We believe investment success is predicated on the right blend of art
and science. Our investment results show the strength of our unique
blend of these two key ingredients
1. Our proprietary quantitative models focus on the critically important factor
of fundamental change
•
These disciplined, repeatable processes lead to portfolios with consistent
characteristics over time
2. Our fundamental team vets all model recommendations
•
Analysts have proven their value-adding capabilities over time
3. Proper risk control is a key component of generating consistent
outperformance
•
Our process has been able to generate excess returns without taking
on excess risk
The right combination of true quantitative analysis and rigorous
fundamental analysis will become more important going forward as
equity markets evolve and become more efficient
Investment strategies
“Positive change” is a critical factor in Canada and is a key
part of our investment strategy:
Why does it work:
1. Disclosure in many markets is efficient and instantaneous with
stocks quickly reflecting all known information. Therefore,
change at the margin is the key driver of stocks
2. Research has found that positive and negative fundamental
changes tend to occur in bunches
3. Many investors are reluctant to change their long standing
opinion on a stock even though fundamental information is
changing before their eyes
PMAM’s investment process –
nuts & bolts
PMAM organizational structure
James Lawson
David Picton
CIO
Michael Mahoney
President
Managing Director
Dean Shepard
Arthur Galloway
Managing Director,
Managing Director,
Sales & Marketing
Operations
T Philip Mesman
Michael Kimmel
Michael Kuan
Dashmeet Singh
Aaron Ferrera
Cindy Persaud
Rob Veling
Portfolio Manager
Portfolio Manager
Portfolio Manager
Quantitative Research
Vice President
Operations Manager
Director, IT
Glenn D'Andrea
Elan Gore
Ashley Kay
Kristian Bauer
Scott Hickerson
Patrick Laurence
Sergey Kuznetsov
Trader
Senior Analyst
Trader
Research Associate
Vice President
Operations Manager
Software Architect
Dan DiGironimo
Peter Yik
Phil Porat
Artem Lopyrev
Gina Lombardi
Ismete Malasllani
Nenad Zdravkovic
Trader
Senior Analyst
Analyst
Research Associate
Director
Associate
Software Developer
Nick Rontogiannis
Michael Harber
Brendon Scott
Sasha Ramchandani
Michael Bentz
Senior Analyst
Analyst
Associate
Associate
Director
Mamta Kohli
Petra Sovcov
Barbara Suen
Matthew Natale
Analyst
Executive Assistant
Associate
Performance Analyst
Sonny Aggarwal
Man Ha Huynh
Analyst
Associate
Shechar Dworski
Carol McMurray
Analyst
Administration
Carmen Tang
Analyst
Evan Hughes
Analyst
Matthew Ruban
Analyst
Ashley Bussin
Research Associate
Tigran Karapatien
Research Associate
Updated as at April 2012
Summary of current trends
in our portfolios
We expect equity investors to gravitate to companies that can
generate reasonable and consistent earnings growth in a lower
economic growth environment
• We remain overweight technology, consumer discretionary and industrial stocks
• We are adding to non-Canadian stocks in these sectors as well as in health care
to take advantage of opportunities in a broader opportunity set
We have reduced weightings in resource stocks and are now
underweight energy and materials sectors
• Year-end beta trade is largely behind us
• Falling natural gas prices are overwhelming resource and reserve growth
• Earnings momentum and returns on capital are falling as costs increase
We are underweight “defensives” such as utilities, telecom and REITS
• Growth drivers are scarce while valuations are very high on absolute and
relative basis
• Near term market weakness could provide relative strength to further
reduce positions
• Rising interest rates could be a major risk to the group
Sector weightings
As at March 31, 2012
Port.
Bench.
Weight
Weight
Difference
Consumer Discretionary
4.35
10.33
-5.99
Consumer Staples
2.87
10.11
-7.24
Energy
25.92
11.51
14.41
Financials
31.33
19.82
11.51
Health Care
1.52
8.88
-7.36
Industrials
5.67
10.48
-4.81
Information Technology
1.31
13.19
-11.89
Materials
20.26
7.73
12.54
Telecommunication Services
4.87
4.36
0.51
Utilities
1.90
3.59
-1.68
Total
100.00
100.00
0.00
GICS Sector
Fund performance
CI Canadian Small/Mid Cap
Quartile
CI Synergy Canadian
Corporate Class
Quartile
CI Synergy Tactical Asset
Allocation
Quartile
Source: Globefund, March 31, 2012
YTD
1 Year
3 Year
5 Year
10 Year
6.4%
-2.6%
21.8%
2.2%
6.2%
2
2
2
2
3
6.0%
-6.9%
13.1%
-1.2%
6.3%
3
2
1
2
1
6.4%
-3.8%
8.2%
0.5%
4.8%
1
2
2
2
1
Thank you
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